Royal Gold (NASDAQ: RGLD) appears to be in a strong position right now—high-margin, debt-free, and benefiting from a remarkable rally in gold prices. Revenue has climbed nearly 19% over the past year, significantly outpacing its three-year average growth rate of 9.6%. With a 60% operating margin driven by its royalty-based model, minimal operational risk, and robust cash flow, the company looks solid on paper. But when things seem too good, it’s often the right time to start questioning. So here’s the key question: Is now the moment to lock in gains on Royal Gold? We believe the answer is yes!
The stock has delivered nearly 40% returns so far this year, and while further upside isn’t out of the question, this doesn’t appear to be a good entry point. The stock seems overextended. We flag such over-extensions in our High-Quality portfolio, which has beaten the S&P 500 and produced returns exceeding 91% since it was launched.
Here’s what’s causing concern:
Riding the Gold Rally — Until It Doesn’t
Royal Gold’s recent surge aligns closely with soaring gold prices, which are currently at record highs. However, gold prices react to macroeconomic developments. The Fed is expected to reduce interest rates in 2025, but that expectation may already be baked into the current price. If that doesn’t play out as anticipated, gold prices could fall. Additionally, if geopolitical risks subside and fair trade deals are finalized, investors could shift away from gold into riskier assets.
Should this happen, royalty stocks like RGLD—which are essentially leveraged plays on gold—could be hit first. Royal Gold hasn’t been outperforming; it’s simply riding the wave. And all waves eventually break.
This Pattern of Price Movement Is Concerning
There’s a peculiarity here: Royal Gold’s trajectory hasn’t been smooth. Even though gold has steadily risen since mid-2023, RGLD hasn’t followed suit with the same consistency. It has shown vulnerability to sharp corrections—think 15%-30%—after strong rallies. That’s a warning sign.
The Declining P/E Ratio Speaks Volumes
This detail may be subtle but it’s meaningful.
RGLD’s price-to-earnings ratio has fallen from 38 to 33 over the last six months, signaling that the price rise is largely due to earnings growth. If the market were truly bullish on Royal Gold’s future, we’d expect the P/E to either hold steady or increase. In simple terms, the market is saying: “That was your moment—don’t expect another.”
If you’ve been holding Royal Gold during this run, congratulations—you’ve profited from the rally. But now’s the time to be prudent: take profits or at least reduce your exposure and reallocate. This kind of measured approach is central to our High Quality Portfolio, a selection of 30 stocks that has consistently outperformed the S&P 500 over the last four years. Why? Because the HQ Portfolio is built around delivering better returns with reduced risk compared to the benchmark—as demonstrated in its performance metrics.
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